“Pro Rata or Lump Sum” Presentation (SACOG RPP)

Reading this post could save your local agency $160,000 …

Last week, I was invited to present the topic of “Pro Rata or Lump Sum”[1] to the SACOG Regional Planning Partnership committee. For those unable to attend, I’ve included a copy of my presentation where I shared District 3 Local Assistance’s advice[2] on selecting an authorization method.

It may be difficult to follow my slides without any clarifying notes or audio, but the ultimate recommendation I provided the group was:

Select the Lump Sum authorization method unless the intention of the local agency and MPO/RTPA is to federally fund a project at a specific rate throughout its development.

Why Lump Sum?

In general, our team observed that the authorization method provided no advantage either way when applying to various project situations. Whether the Pro Rata or Lump Sum selection was made, the opportunity to maximize federal participation (i.e. use all awarded federal funds) remained the same … except for one project scenario.

Slide #7 summarizes that one scenario where the Lump Sum method demonstrates a distinct advantage over Pro Rata.

slide7

In this scenario, a “fully funded”[3] $1,000,000 construction project with $800,000 of federal funds programmed is represented. I advised the group to assume that no additional federal funds would be provided by the MPO/RTPA in this project scenario.

To explain how this scenario motivated our recommendation, we went through the major project milestones of authorization, award, and final using both methods (Pro Rata is depicted with the red column and Lump Sum is shown in green).

Authorization

Consistent with the other scenarios, neither method provides an advantage over the other at time of authorization. Both methods of authorization produce a situation with all programmed federal funds ($800,000) contributing to the project.

The Pro Rata share is established at 80%. The Lump Sum share is set to $800,000.

Award

In this scenario, project bids come in higher than estimated. Again, similar to other project scenarios, neither method provides an advantage over the other with the award adjustment. Both methods of authorization still produce a situation that includes all federal funds ($800,000) programmed for the project .

After submitting the award package, the Pro Rata share is adjusted to 53%[4]. The Lump Sum share remains at $800,000.

Final

As the project completes, the actual cost of the project is determined to lower ($1,200,000).

This is where the method of authorization impacts the Federal share and Lump Sum presents an advantage.

Since the Pro Rata share was adjusted to 53% at award, the federal share for this project equates to only $640,000.

In comparison, the Lump Sum share is unaffected and remains at $800,000.

Selecting the Pro Rata authorization method in this project scenario would cost your agency $160,000!

When to Select Pro Rata?

If there is an intention and commitment to fund a project at a specific rate, regardless of cost, then we advise to select the Pro Rata method.

The following are situations where Pro Rata is the recommended method of authorization:

  • Bridge program projects. (These projects are typically programmed based on scope rather than cost.)
  • Projects that  utilize toll credits. (All projects proposed to use toll-credits should be fully funded at the maximum allowable federal reimbursement rate.)
  • Any other projects where the MPO/RTPA have agreed to contribute federal funds at a fixed percentage.

Your Turn

The method of authorization is a decision ultimately made by local agency (and MPO/RTPA). Although I shared our recommendation, I highly encourage that you and your team review your agency projects and analyze the various scenarios like we have.

If the topic of Pro Rata and Lump Sum is still confusing, your Local Assistance Engineer is ready to help.


  1. Pro Rata establishes an agreement with a Federal share at a specified rate. Lump Sum establishes an agreement with a Federal share limited to a specific dollar amount. Both are are not allowed to exceed the legal pro rata.  ↩
  2. I recommend reading John Hoole’s post about “Pro Rata vs. Lump Sum” if you haven’t yet.  ↩
  3. With “fully funded”, it means that the project’s federal share is established at the maximum possible. For the scenario I presented, I assumed a maximum federal reimbursement rate (legal pro rata) of 80% to simplify the calculations used.  ↩
  4. Federal Participation Rate = Total Federal Funds / Total Federal Participating Costs = $800,000 / $1,500,000  ↩

About David Giongco

David is a registered civil engineer with the Caltrans Division of Local Assistance. Learn more about him here and connect with him on Twitter and at LinkedIn.

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